13-14 September 1999 (M'babane, Swaziland)

Overview of the Global Sugar Economy and Medium-Term Prospects

12. The outlook for the world sugar market in 1998/99, the Consultation was informed, was for continued oversupply due to production expanding at a faster rate than demand. The supply surplus would add to already high stock levels and was expected to limit any recovery in prices.

13. The weak macroeconomic performance particularly in the major markets, such as the Russian Federation and Indonesia, exacerbated the situation. However, some improvement was expected by 2005.

14. World sugar prices continued their declining trend in 1998/99, with the rate of decline accelerating during the first months of 1999. The year opened with an average WASA price of US cents 8.11 per pound in January, and by the end of April prices had plunged to a 13-year low of US cents 4.78 per lb. World prices declined by more than 35 percent in the first three-quarters of 1998/99.

15. FAO’s revised estimate of the world sugar production in 1998/99 was 129.6 million tonnes (raw value), 6.5 percent more than the 126.6 million tonnes assessed for the 1997/98 season. Upward revisions were made to estimates for cane producing countries, mainly Brazil and India, which more than offset the downward adjustments in beet sugar production in the European Community (EC).

16. Cane sugar production was currently estimated at 93 million tonnes, or 72 percent of the global output, while sugar produced from beet was expected to decline further to 36.6 million tonnes.

17. Sugar production in developing countries was estimated to expand by 5.4 million tonnes from 1997/98 to total 87.6 million tonnes or 68 percent of world production. Output in the ACP countries was expected to account for 2 percent of global output. Among developed countries, production was estimated to reach 42.1 million tonnes.

18. World sugar consumption in 1999 was forecast to grow at a slower rate of 1.3 percent to reach 125.6 million tonnes, with developing countries accounting for about 64 percent of the total. Among developing countries, the largest declines would occur in the Far East, due to reduced purchasing power in several major markets as a result of weak economies. Consumption in that region was estimated at 41.1 million tonnes in 1999, 1.2 percent more than the previous year’s level but well below the previous 5-year average growth rate of 3.5 percent. Demand in Latin America and the Caribbean was also expected to experience a slower growth rate of below 2 percent, while in Africa consumption was expected to grow by 200 000 tonnes.

19. Disappearance in developed countries was expected to remain at similar levels to 1998, mostly due to dietary habits. A growth rate of 1 percent to 10.4 million tonnes in North America was mainly due to the increase in the United States, currently assessed at 9.1 million tonnes or 23 percent of developed countries’ consumption. Europe (dominated by the EC) would account for 44 percent and the Commonwealth of Independence States (CIS - dominated by the Russian Federation), 21 percent.

20. World sugar trade in 1998/99 would continue to be affected by an imbalance between export availabilities and import demand. Availabilities would be expected to remain at about 37 million tonnes and import demand would decline by 5 percent to about 35 million tonnes. In Brazil, competitive export prices following the devaluation of the Real and a policy shift in favour of greater sugar output would result in exports in excess of 8 million tonnes, which would counterbalance lower exports from major exporting countries including the EC. On the importing side, weaker demand was expected from Russia, the United States and China. The resulting oversupply would add about 4 million tonnes to global stocks, which were already high, approaching a level of 50 million tonnes and a stock-to-consumption ratio of 40 percent.

21. As early forecasts for the next season did not indicate a significant variation in world production, prices were expected to largely depend on the economic situations in major importing countries. The current high world stock levels would imply that prices would remain low unless demand was significantly boosted, perhaps by considerable economic growth in the sluggish economies of the major importing countries.

22. In the medium term to 2005, disparate trends in demand and production at national levels, coupled in some instances with increased market access opportunities arising from policy changes in recent years, were projected to give new impetus to international trade in sugar.

23. Among the main exporters, the most substantial increases in trade were projected for Brazil and Cuba. Thailand and Australia’s net exports were also projected to be substantially greater, but South Africa would achieve the largest percentage increase (17 percent annually). By contrast the EC –which was the largest net exporting market during the base years (1993-95) – was projected to cut its net exports by about 2.4 million tonnes over the projection decade to less than 2.1 million tonnes.

24. The bulk of the market opportunities for exporters was expected to be in markets where domestic production could not keep pace with demand. Regionally among developing countries, it was projected that Africa’s net imports would increase by 7.3 percent a year followed by the Far East (5.8 percent annually) notwithstanding the increase in Thailand’s projected export expansion, and the Near East (3.1 percent). Among developed regions too, some large increases in net imports were projected including in North America with net import growth of 4 percent per year, 5.9 percent per year in the United States alone and 4.1 percent for the former USSR.

25. In terms of policy issues, an earlier study of the Impact of the Uruguay Round (FAO 1995) concluded that the Uruguay Round Agreement (URA) would induce increases in world sugar production, consumption and trade, but the overall effects would be relatively small. Expressed in another way, the scope for reductions in market interventions was potentially still large.

26. In conclusion, the consequences of policy changes in world sugar trade which was subject to preferential arrangements, in particular regarding ACP countries, were highlighted. Already in the decade preceding the conclusion of the URA, the volume of sugar traded under preferential arrangement had declined from about 8 million tonnes to less than 3 million tonnes. Reductions agreed under the URA on tariff rates for both raw and white sugar would generally have the effect of further reducing the value of preferences. However, other aspects of the URA, for example the commitments to reduce the volume of subsidized exports were expected to be of help to preferential suppliers, through impacts on prices in third markets. FAO’s latest projections suggested that in the case of the ACP sugar producing /exporting countries, the URA would raise their export earnings. This would be, however, almost entirely a trade volume effect as it was projected that the changes in the prices of preferential and non-preferential sales would be offsetting. In general, for ACP countries, the scenarios explored suggested that export revenues would benefit more from widespread trade liberalization, which would help to support free market prices, than from further liberalization limited only to preference giving countries, which would also have a negative effect on the preference price.


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